Question

Susan is having a bakery in the heart of the city and supplies special type of cheese cookies to all the retail outlets based on the demand. Her cost of making each box of cookies is 15 SAR and she sells it at 18 SAR. The historical data shows that her demand is normally distributed with a mean of 250 boxes per day with a standard deviation of 22 boxes. All those boxes that are not picked up on the same day by the retailers are sold in her own shop at 10 SAR on the next day. What is the optimal stocking level?

Answer 1

Answer:

The optimal stocking level is 243 boxes

Explanation:

In order to calculate the optimal stocking level we would have to calculate the following formula:

optimal stocking level=mean+(Z* standard deviation)

According to the given data we have the following:

mean=250 boxes per day

standard deviation=22 boxes

To calculate the z value we would have to calculate the service level as follows:

service level=shortage/(shortage+overage)

service level=3/(3+5)

service level=0.38

Hence, z value is -0.31

Therefore, optimal stocking level=250 + (-0.31 * 22)

optimal stocking level=243 boxes

The optimal stocking level is 243 boxes